How much tax is levied on the selling of unlisted shares?

The bull market in listed stock markets has led to a bull market in unlisted stock markets, where investors buy and sell shares in private companies (such as Reliance Retail and HDFC Securities) that are not currently listed on the NSE or the BSE. Unlisted stock prices have also risen significantly in the last year, resulting in substantial returns for investors. These shares are purchased through brokers/direct sellers on unlisted markets and sold in a similar manner on unlisted marketplaces. Because these equities are not sold on a regulated stock exchange, no STT (security transaction tax) is applicable, and the manner in which taxes are applied differs from that of listed securities.

The following is the tax rate on the selling of unlisted shares:

The tax rate on profits realised on the sale of these shares would be determined by whether the shares are long or short term.

1. The long-term capital gains (LTCG) tax rate is 20% if the holding period is more than 24 months (with indexation benefit)

2. If the holding period is less than 24 months, the short-term capital gains (STCG) tax is calculated according to the slab rates.

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When it comes to listed stocks, shares held for more than 12 months are considered long term and are subject to a flat 10% tax. A flat 15% tax will be imposed if the listed security is held for less than 12 months.

Capital gains are calculated in the following way:

The fair market value of unquoted shares must be ascertained before capital gains may be calculated. The higher of the actual sale price and the sale price for tax purposes would then be considered the sale price. The cost of acquisition, as well as any transfer expenses, would be removed from the above-mentioned value. Indexation would be allowed in the case of long-term capital gains, and we would use the “indexed cost of acquisition” instead of the “actual cost of acquisition.” Under Section 54F, the LTCG exemption can also be claimed by investing the money in a residential property.

ITR submission:

A person who owns unlisted shares must report them on his or her income tax return. Only ITR-2 and ITR-3 can be employed in this instance, as ITR-1 and ITR-4 are not applicable. If an individual has business income in addition to capital gains from stock sales, these profits must be stated in ITR-3. These gains would be reported in ITR-2 if the person did not have any business income.

In the event of STCG, these must be declared in Schedule CG at Point No. A5; in the case of LTCG, they must be disclosed in Schedule CG at Point No. B9.

It should be noted that even if an individual does not buy or sell any unlisted shares during the year, but just holds unlisted shares purchased in prior years, he or she must disclose these unlisted shares in the ITR.

At Point (j) of Part A- General, information on the starting balance of securities on the first day of the financial year, the shares purchased/sold, and the closing balance of securities on the last day of the financial year would be needed to be revealed. This is one of the most typical blunders made by people who own unlisted stock; they only report it in the year of sale on their ITR. It’s worth noting that if a person had any unlisted shares at any point during the year, even if no transaction occurred, they must be stated in the IT return.

Set out on your journey:

If the shares are sold at a loss, the loss cannot be offset against any other source of income, such as a salary, a house, company income, or other kinds of income, but only against capital gains.

Only LTCG can be used to offset a long-term capital loss on the sale of unlisted shares. Short-term capital loss, on the other hand, can be deducted using both LTCG and STCG. If any loss remains after set-off, it can be carried forward for another eight years and offset with capital gains that may accrue in that time.